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Bill George

Harvard Business School Professor, former Medtronic CEO

The Moral Economy

During the World Economic Forum, I had the pleasure of participating on a panel on “The Moral Economy” with Mary Robinson, former UN High Commissioner for Human Rights, Jim Wallis, founder of Sojourners, and two outstanding CEOs.  Here are some quick takeaways from the discussion:

  • Corporations are not about conflicts between investors and societal needs. Their responsibility is Creating Shared Value – a courageous concept promoted by my colleague Michael Porter.  “CSV” rebuts Milton Friedman’s doctrine that companies should strive solely to maximize shareholder value.
  • Corporations are chartered by society, and so fundamentally they must consider their impact on society.  They also have different stakeholders too: customers, employees, investors, government, labor unions, suppliers, and the public.  If they “value maximize” to one group (investors) then they destroy the ecosystem they depend on in order to remain competitive.
  • Jim Wallis and I both commented that the best way to transcend a system where the corporation is navigating the interests of the different stakeholder groups is through establishing a powerful mission.  At Medtronic our mission is to restore people to full life and health.  We went from restoring 300,000 new patients per year to 10 million people today.
  • Carlos Danel at Compartamos told us that they have set up an internal report card for how they manage metrics that may create tension, such as their value of “transparency to customers” and economic indicators like profitability.
  • Similarly, Jonathan Reckford, CEO of Habitat for Humanity, asked a question from the audience about balancing profit versus consumer affordability, particularly in financial services.  Each institution has to balance these objectives, but it is more important to realize this is not zero-sum.  Through focusing on a powerful mission, we can transcend tradeoffs and actually create more value for each stakeholder group and society as a whole.
  • Transcending these individual interests is the work of great leaders.  Leaders must align the company around a powerful mission.  They must reinforce that mission through measurements and compensation.  They must also have confidence to push back on Wall Street, when it has short-term needs (EPS growth) that are incompatible with the long-term health of the company.

Several big themes emerged during the dialogue, including the fact that we have a broken social contract, the need for business to treat each person with respect, and the need to seek out ways to promote the common good through our institutions, including business.

On my part, I asserted that any company that only focuses on creating shareholder value will self-destruct.  General Motors, Kodak, K-Mart, and Sears Roebuck all lost their way.  They didn’t create shared purpose and values.  Leaders cannot run a company just with rules and regulations; instead, they must bring them together around a sense of shared purpose and values.  Then they have to align the incentives to reflect these needs.